Market Week: May 9, 2016

Key Dates/Data Releases

5/10: JOLTS

5/11: Treasury budget

5/12: Import and export prices

5/13: Retail sales, Producer Price Index, consumer sentiment

The Markets (as of market close May 6, 2016)

A mixed bag of economic indicators headlined by an underwhelming jobs report, coupled with news of continuing financial trouble in Puerto Rico, pushed stocks lower for the second week in a row. Each of the indexes listed here lost value by last week’s end with the Russell 2000 and the Global Dow falling the most. Following last Friday’s jobs report, the yield on 10-year Treasuries fell to 1.70% before climbing a bit by the end of the day to 1.77%–still 6 points lower than the prior week’s closing yield.

Crude oil (WTI) fell slightly, closing the week at $44.56 a barrel, down $1.36 under the prior week’s closing price. The price of gold (COMEX) also dropped by last week’s end, selling at $1,289.70 by late Friday afternoon, down from the prior week’s closing price of $1,295.90. The national average retail regular gasoline price increased to $2.240 per gallon on May 2, 2016, $0.078 above the prior week’s price but $0.424 below a year ago.

Market/Index

2015 Close

Prior Week

As of 5/6

Weekly Change

YTD Change

DJIA

17425.03

17773.64

17740.63

-0.19%

1.81%

Nasdaq

5007.41

4775.36

4736.16

-0.82%

-5.42%

S&P 500

2043.94

2065.30

2057.14

-0.40%

0.65%

Russell 2000

1135.89

1130.84

1114.72

-1.43%

-1.86%

Global Dow

2336.45

2377.38

2313.29

-2.70%

-0.99%

Fed. Funds rate target

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.83%

1.77%

-6 bps

-49 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

Job growth slowed in April, according to the latest report from the Bureau of Labor Statistics. Total nonfarm payroll employment increased by 160,000 in April, and the unemployment rate was unchanged at 5.0%. However, over the prior 12 months, employment growth had averaged 232,000 per month. Job gains occurred in professional and business services, health care, and financial activities. Job losses continued in mining. The number of unemployed persons was little changed at 7.9 million, and the number of long-term unemployed (those jobless for 27 weeks or more) declined by 150,000 to 2.1 million in April. Both average wages and the length of the average workweek increased in April, with the workweek lengthening by 0.1 hour to 34.5 hours, and payrolls gaining $0.8 per hour to $25.53.

New orders for manufactured goods increased $5.0 billion, or 1.1%, to $458.4 billion in March, according to the latest report from the Census Bureau. Shipments increased 0.5% and inventories gained 0.2%. However, unfilled orders dropped $1.2 billion, or 0.1%. The overall gain in new factory orders for March is tempered, somewhat, by the fact that it follows February’s 3.1% decrease, and is down 2.2% year-on-year.

Despite the positive factory report for March, April didn’t start off very well for U.S. manufacturers, as the purchasing managers’ indexes for both Markit and the Institute for Supply Management (ISM®) fell in April. The Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 50.8 in April, down from 51.5 in March and only slightly above the 50.0 no-change threshold. The latest reading was weaker than the average seen in the first quarter of 2016 (51.7) and signaled the slowest improvement in overall business conditions for just over six-and-a-half years.

The ISM® Purchasing Managers’ Index fell 1.0 percentage point to 50.8% in April. The New Orders Index registered 55.8%, a decrease of 2.5 percentage points from the March reading. The Production Index registered 54.2%, 1.1 percentage points lower than the March reading.

Non-manufacturing (service) business activity expanded in April, as the composite ISM® Non-Manufacturing Index increased 1.2 percentage points over the March NMI® of 54.5%. For April, the New Orders Index (3.2 percentage points), the Employment Index (2.7 percentage points), and the Prices Index (4.3 percentage points) all increased over their respective March readings, with only the Non-Manufacturing Business Activity Index falling by 1.0 percentage point.

According to the Census Bureau, construction spending during March was estimated at a seasonally adjusted annual rate of $1,137.5 billion, 0.3% above the revised February estimate of $1,133.6 billion. The March figure is 8.0% above the March 2015 estimate of $1,052.9 billion. For the month, both private residential construction (1.6%) and nonresidential construction (0.7%) were above their respective February totals.

The goods and services deficit was $40.4 billion in March, down $6.5 billion from February. March exports were $176.6 billion, $1.5 billion less than February exports. March imports were $217.1 billion, $8.1 billion less than February imports. Year-to-date, the goods and services deficit decreased $1.0 billion, or 0.8%, from the same period in 2015. Exports decreased $30.5 billion, or 5.4%. Imports decreased $31.6 billion, or 4.5%. While the narrowing of the trade gap may appear to be a positive, the fact that imports decreased is indicative of slowing domestic demand for goods and services and curtailed consumer spending. Falling exports shows an ongoing weakened demand for American-made goods and services abroad, spearheaded by the continued strength of the dollar. In general, this report is not a good sign for projecting economic growth.

Nonfarm business sector labor productivity decreased at a 1.0% annual rate during the first quarter of 2016, the U.S. Bureau of Labor Statistics reported, as output increased 0.4% while hours worked increased 1.5%. From the first quarter of 2015 to the first quarter of 2016, productivity increased 0.6%. Productivity is essentially the measure of the output of goods and services for each hour worked. For the first quarter of 2016, it took workers more time to produce fewer goods and services.

The debt crisis in Puerto Rico worsened last week as the island’s Government Development Bank (GDB) could not make a debt payment of about $367 million. The latest missed payment has prompted some in Washington to consider legislation that would allow the U.S. territory to restructure more than $70 billion in debt. Puerto Rico was able to reach a tentative agreement with the hedge funds that own the bonds of the GDB to exchange some unsecured bonds for new, secured bonds for what amounts to about $0.56 on the dollar. Further adding insult to injury, the ongoing risk of the Zika virus has emerged as a serious health issue.

For the week ended April 30, there were 274,000 claims for unemployment insurance, an increase of 17,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate fell to 1.5%. The advance number for continuing unemployment insurance claims for the week ended April 23 was 2,121,000, a decrease of 8,000 from the prior week’s revised level.

Eye on the Week Ahead

Two important economic reports are to be published at the end of the week. The Census Bureau releases the latest information on consumer spending in April through the retail sales report. Overall retail sales dropped off in March, as consumers spent less and saved more. The report on what producers are charging for consumer goods and services is highlighted in the Producer Price Index from the Bureau of Labor Statistics. Another sign of sluggish inflationary trends along with the retail sales, producer prices also fell in March.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.